During a recent review with Rual, DuBord notes that tax law changes, effective next year, will lower the tax on capital gains to 15% but eliminate the ability to offset income with realized losses. To minimize Rual’s tax liability, DuBord is considering the optimal location (tax- deferred or taxable) for her assets prior to the tax law changes. DuBord and Rual agree to maintain Rual’s current asset allocation. Rual’s investment portfolio and asset location are shown in Exhibit 2.
The answer is to move all equities into the taxable account and all bonds into the tax deferred account. I understand the bonds in the tax deferred account (because they are higher tax and income generating).
BUT, shouldn’t the equities also be in the tax deferred since current capital gains tax is greater than future capital gains tax rates (25% now, 15% in the future). I don’t understand why you would sell all of your equities in the tax deffered account and move them into the taxable account.
Any help is much appreciated. Thanks.